You have the core principle right: for B2C supplies of digital services, the place of supply is where your customer is located, not where you are. That is what creates the obligation — and the non-union scheme is how you deal with it without registering in 27 countries.
How it works. The non-union scheme lets a UK business register in one EU member state (your "member state of identification") and declare the VAT due on B2C digital services supplied across the EU through a single quarterly return, paying the VAT at each customer's local rate. HMRC's own guidance confirms the options: register for the non-union scheme in one EU state, or register for VAT separately in every member state where you have customers — the scheme is the practical choice for almost everyone.
Do you need it below the UK VAT threshold? Yes — this is the trap. The UK VAT registration threshold is irrelevant here: once your place of supply is in the EU, you owe that country's VAT from the first sale. Being below the UK registration threshold gives you no exemption from this.
Setting it up. Choose a member state of identification (Ireland is popular for English-language administration), register for its non-union scheme, and start charging the correct local VAT rate on each sale. You will need to identify each customer's country, so keep two pieces of location evidence per sale — for example billing address plus IP address or bank details. File the OSS return quarterly and pay the VAT due to that member state, which distributes it onward.
Practical pointers. Check first whether your templates are truly "digital services" — automatically delivered downloads are, but anything involving meaningful human input may not be. Keep meticulous customer-location records; they are the first thing an auditor asks for. And review your position regularly: if you later register for UK VAT, the non-union scheme still handles the EU side separately.
